Many dealerships work with different providers to offer a variety of financing options. These include a captive lender that processes the loan in-house and an outside partner that works with the dealer to provide lending solutions.
Borrowers generally choose bank financing if they want to borrow large amounts or prefer a trusted financial institution, while credit unions often provide preferential rates. Getting pre-approved for an auto loan ahead of time also makes it easier to negotiate.
Buying vs. Leasing
The decision of whether to lease or buy is a personal one that depends on various factors. Leasing provides access to a newer vehicle for a lower monthly payment without needing to make a large down payment. You also benefit from reduced repair costs because the car is usually under warranty for most of its life. However, you only build equity in the vehicle and must return it at lease-end if you purchase it.
On the other hand, buying a car at https://www.turnerkia.com/ requires higher monthly payments, but you own the vehicle once the loan is paid off. You also have the freedom to customize your vehicle however you want and don’t have to worry about mileage limits or wear and tear charges.
It would help if you always explored financing options before you visit the dealership. By securing financing, you can ensure the dealer offers the best terms possible.
Financing vs. Trading
Dealership financing is often the more convenient option since you can test drive, buy, and finance a car all day. However, this convenience comes at a price — usually higher interest rates. It also leaves you less able to shop around for the best rate.
If you plan to trade in a current vehicle, the dealership may run a credit check, affecting your score. To avoid this, have your dealer value your current vehicle separately from the dealership’s purchase offer and negotiate these two prices independently of each other.
Getting an “out-the-door” price in writing before you go to the dealer can help you compare offers on an apples-to-apples basis and catch any add-ons the salesperson may try to slip in. It can also help you focus on total cost rather than monthly payment.
Credit Score
Your credit score plays a key role in your financing options at a car dealership. Your credit report contains information about your borrowing and repayment activities, which is used to determine your debt capacity and how likely you are to default on a loan.
Most car shoppers require financing for their vehicle purchases. While a few dealerships have in-house financing, most offer third-party auto loans. Banks, credit unions, and online lending providers are among those that provide a variety of car loan terms and interest rates. You also may be able to find lenders who specialize in working with subprime borrowers.
Getting pre-approved for an auto loan is a good idea before you head to a dealership. This will help you avoid multiple hard inquiries on your credit report, which can lower your score. Rate shop with different lenders within a 14-day window to minimize the impact on your credit score.
Down Payment
The amount of money you put down on a vehicle can significantly affect your financing options. A larger down payment means your loan-to-value ratio is lower, which can lead to a more favorable loan term for you.
Car buyers without cash or the ability to make a down payment can also consider using their trade-in vehicle as their down payment. However, get a fair price on your current car before trading it to the dealer.
Down payments are important because they show lenders you have some “skin in the game.” They may see that you have the financial wherewithal to keep up with your car loan despite having a low credit score. Additionally, making a sizable down payment can decrease your overall loan term, which means less time and money you have to pay interest. Car dealerships generally accept down payments in cash, personal check or, money order, and sometimes even credit cards.
